PROTECT YOUR ASSETS AND WIN DURING DIVORCE!
Below is an articel from a local newpaper in Milwaukee. For Financial Advice To Protect Assets and Credit Rating - Turn to Parental Rights Specialists: FINANCIAL SOLUTIONS GROUP 1-877-365-9500 OR EMAIL
FinancialSolutions@Winning.comPlanning can reduce financial pain of divorce
Quirks in the tax law offer benefits as well as hazards for each party
By KATHLEEN GALLAGHER
kgallagher@journalsentinel.comLast Updated: Aug. 30, 2003
When one Milwaukee-area man and his then-wife were going through a divorce, they thought they would have to divide up the burden of a lot of consumer debt they had run up together.
That could have been a problem if one paid off the debt and the other didn't. If one declared bankruptcy without paying off the debt, for instance, the other would be liable for that portion, even though the divorce decree splits responsibility for the debt.
When the final break happened, the couple avoided that risk and was able to walk away debt-free, primarily because of a local financial planner's suggestion they take advantage of a quirk in the tax law. They were able to make early withdrawals from their retirement plans without paying penalties to the government.
"When you're done, you want to start fresh and new," said the grateful ex-husband, who didn't want to be identified. "You want to start with a clean slate."
The quirk that helped the couple to clean their slate is a provision in the tax code that allows people to take premature distributions from their 401(k) plans without the usual 10% federal penalty and 3.3% state penalty if they have a qualified domestic relations order - a divorce order that directs a pension or 401(k) plan to pay benefits to someone other than the individual participating in the plan.
Garrick G. Zielinski, a Franklin-based financial planner and certified divorce planner, worked with the ex-husband's lawyer to figure out how to pay off the marital debt. "Most divorces are emotional," said Zielinski, who is also president of WFA Asset Management Corp. in Franklin. "A financial adviser can get in and set those issues aside and look at the facts."
The facts aren't always pretty. For starters, couples who are parting ways are often automatically increasing their living expenses considerably just by virtue of having to maintain two separate residences instead of one.
"That's just the expense side - but you can't ignore the tax issues and the longer-term issues that go along with that," said Gregory J. Ksicinski, a principal in the Brookfield office of Madison-based Suby Von Haden & Associates.
Tax consequences
On the tax side, simply figuring out the ins and outs of income-tax filing can be very complicated in a community property state such as Wisconsin, where each spouse owns half the assets until the divorce date, but their filing status is determined by the date of the divorce.
"I've advised people to get divorced in early January rather than late December so they can file a joint return because, in certain situations, that may be better," Ksicinski said.
Financial professionals can also help one party get past face value and figure out what the other spouse's assets are really worth, said Nina Vitek, a family lawyer and partner at Lara, Vitek and Stein in Milwaukee.
Vitek relies on accountants to provide tax expertise, value businesses, and perform forensic accounting and lifestyle audits when there's a suspicion one party is siphoning off cash and stashing it somewhere.
"I want validation," Vitek said. "It's important to supplement legal expertise with the skills of accountants and other financial experts to really get behind the numbers."
Take the value of a pension. It often takes a trained actuary to determine what one person's pension benefits are really worth.
Even a 401(k) plan can be tricky. In many cases, attorneys will recommend discounting the current value of the 401(k) by, say 20% in recognition of the fact the beneficiary will have to pay taxes on the money when it's withdrawn, Ksicinski said.
He also recommends divorcing couples consider doing the same thing with stocks that have appreciated so that the amount of potential capital-gains tax due would be deducted from the face value of the stock for valuation purposes.
"Everybody should be aware of the tax aspects of the settlement on all the assets they're receiving in the final distribution so there isn't a surprise a couple years later," Ksicinski said.
Looking to the future
Zielinski agrees, and says he tries to keep people focused on the future value, rather than the current value, of their assets.
"The point is not just to look at the division of assets today. It's the likely outcome of what those assets will do for you post-divorce. It's retirement, nursing home and any financial issue you can think of," Zielinski said.
For example, the current dollar value of a couple's home and the assets in one spouse's retirement plan may be the same. But unlike the pension, the house requires regular infusions of cash for expenditures like maintenance and taxes.
"The facts are most people have no business keeping their homes," Zielinski said.
If there is a strong reason for keeping a home - one parent wants the kids to be able to stay there until they finish school, for example - Zielinski says it's a good idea to plan on selling it after graduation.
Professionals such as Zielinski say they bring more than just their financial expertise to a divorce - particularly those that get emotionally messy.
"There aren't any winners in divorce other than lawyers and guys like me," Zielinski said. "But a guy like me can come in and maybe talk some common sense into the parties and show that it's for everyone's good.
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